Income inequality: Islamic view

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04 October 2013 9:45

The fact is that income inequality even in developed countries is high and growing, despite the steady growth observed in the growing East Asian countries, as well as in Europe and North America as a whole.

One of the explanations regarding income inequality is the fact that people have different skills and their level of performance is significantly different. Some people are ambitious and using their innate abilities and favorable circumstances, they tend to acquire high labor skills, and therefore deserve a relatively higher average compensation. Others who have these characteristics or circumstances, therefore, receive relatively less payment.

The promise of equal wages and level of life in communism was very attractive in its form, and, especially, to the masses that are not allocated capacity for work and availability of knowledge and skills, do not have access to quality education and circumstances. The argument that everyone should have equal rights and equal level of life, seemed very convincing.

However, people have different tolerance for risk, different innate abilities, different attitude to the progression of life and career, the different levels of ambition and, as a consequence, they are making different levels of effort in education, acquire different skills. As a result, significantly different level of their performance. The difference in the above-mentioned characteristics may not necessarily be the result of discrimination. Most of them can be controlled and produced by the man himself and his choice. Equating the compensation of each in this case is unreasonable.

Nevertheless, Islam considers the problem of income inequality and discriminatory access to resources alternative and direct way. We see that income inequality may lead to biased access to education, health and welfare. It is possible that low-income people may not have access to quality education, objects of qualitative health, are not able to invest in improving their abilities and human capital development and in this regard, they may remain in a poverty trap and not be able to overcome it in the conditions of free market economy.

As regards discrimination in Islam, there should be no discrimination based on sex, religion, region or ethnicity. But, if people have different levels of performance, their wages may vary and are determined on the labour market through supply and demand.

As for inequality of income it may occur as a result of inequality, when fixed loan repayment profit as a percentage. Interest on the basis of financial intermediation are profitable in every society through the provision of private law creating paper money at the central bank and the provision of fractional reserve system, which gives the right to private banks to create credit money.

This money capital can be given to a loan on which it is possible to earn a fixed rate of interest. Thus, the capitalists are largely insured against losses, fluctuations and economic uncertainty. But, other factors of production cannot afford such a luxury as their compensation from the production activities involves the provision of the services (in case of labor), or with the provision of property (land or physical capital), which have value, but are deficient and lose utility value over time, unlike monetary capital.

Islam forbids interest on the basis of the earnings and closes the door for the systematic growth of income inequality as a result of inequality. People in the Islamic welfare state benefit from the institutions of Zakat and Waqf. In addition, infak and the prohibition of interest on the basis of income and financing also release the resources and create the circulation of wealth in the production process.

Thus, in a nutshell, Islam allows inequality (differences) in wages for the difference in performance, but does not allow discrimination. In addition, if the wage differences are caused by reasons that require fair distribution and access to resources, then, Islam has unique mechanisms to ensure the fair distribution of resources and opportunities.